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Fixed deposits are offered by banks and NBFCs in India. Their popularity is rising since they’re able to offer a high return on investment without needing you watching them all the time. The FD interest rate return varies from one organisation to another. But the whole mechanism is regulated by the Reserve Bank of India. They guarantee up to Rs.1 lakh against insolvency of the bank. You are likely to get a higher income on FDs in return with corporate fixed deposits than banks.
Fixed deposit helps people to invest a sum of money for a predetermined span of time to receive a specified interest rate. So, it’s a way in which you lend your money to the bank or the NBFC. In turn, they pay you interest. The FD interest rate return is primarily determined by the Reserve Bank of India after lengthy and complex calculations to analyze market trends.
An FD calculator lets you check the total amount that you stand to gain at maturity. But before you make a deposit, it’s imperative that you be aware of the basic terms and features of fixed deposit.
Principal Amount: The amount of money which you deposit with the bank or NBFC is known as the principal amount. The interest rate is calculated based on this amount. So, at the time of maturity, you’ll receive the principal amount along with the interest earned.
Term: It’s the tenure or span for which the fixed deposit is made. This duration varies from one institution to another. But most of them offer a varied range of maturity periods to choose from. This gives you flexibility as to when you want the payout to happen. If you invest in multiple FDs, you can choose different tenures so that you get payouts at regular intervals.
Maturity Amount: The sum of money you receive at the end of maturity is known as the maturity value. Most banks and NBFCs offer a fixed deposit calculator. Using this, you’ll be able to get an accurate idea of the amount you’ll receive at the end of term. This amount is accumulated by adding the interest to the principal amount. Most banks and financial entities offer an auto-renewal system after receiving your consent. If you choose this, the deposit is rolled over for the new tenure.
The Rate of Interest: As we already mentioned, the interest rate is the rate that is applied to the principal amount during the span of the deposit. This rate is decided by the Reserve Bank of India. Although individual banks and NBFCs offer different rates, all of them are quite close to what has been set by the RBI. Plus, the FD interest rate return given to the senior citizen is somewhat higher.
Liquidity: Fixed deposits are regarded as illiquid assets since you won’t be able to withdraw money from the deposit at your convenience. But it doesn’t mean that you won’t be able to use the money in case of any emergency. The bank charges a penalty on the interest amount. This can range from 0.5 to 1 percent. If you’re still willing to break the fixed deposit, then you can use the fixed deposit calculator to see how much you can receive after the penalty has been deducted. The FD calculator is important because every bank has their own policies. It’s important for you to be aware of all the criteria before investing for a deposit.
Taxation: If you’re a salaried employee, you should be aware of TDS, or Tax Deducted at Source. When your total interest earned over a course of a financial year is over Rs.10,000, then the bank or the NBFC will deduct a TDS amount and give you a receipt as evidence of TDS deduction. The tax rate is applicable according to the tax slab that you fall under.